BUSINESS-  AND 
THE  WAR 


•  » 


ALEXANDER  HAMILTON  INSTITUTE 


HCI0&2 


ASTOR  PLACE 


NEW  YORK 


'  A  ^ _ 


BUSINESS  AND 
THE  WAR 


An  investigation  of  the  ability  of  America’s  in¬ 
dustries  to  serve  the  Government  and  care  for 
the  needs  of  private  consumers  during  the  war. 


August  20,  1917 

ALEXANDER  HAMILTON  INSTITUTE 

ASTOR  PLACE  NEW  YORK 

•  ©  1917,  by  Alexander  Hamilton  Institute 


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CONTENTS 


I.  Conditions  at  the  Outbreak  of  the  War 


1.  Domestic  Industry  and  Trade  .  5 

2.  The  Situation  Abroad  .  6 


II.  The  War  Before  the  United  States  Entered 

1.  Effect  of  the  War  in  the  United  States — Industrial 


Paralysis  . 7 

2.  Revival  of  Trade  and  Industry  .  8 

3.  Beginning  of  War  Orders  .  9 

4.  Rapid  Growth  of  Foreign  Trade .  9 

5.  Foreign  Loans  and  Gold  Importations . 11 

6.  New  Capital  Issues  .  11 

7.  Reduction  in  Foreign  Demands .  12 

III.  America's  Entrance  Into  the  War 

1.  Immediate  Effects  .  14 

2.  The  War  Budget  of  the  United  States . 'i . . .  14 

3.  The  Building  of  Ships  .  16 

4.  The  Aerial  Fleet  .  17 

5.  Cantonments  .  18 


IV.  Ability  of  American  Industries  to  Take  Care  of 


War  Orders 

1.  Transportation  .  20 

2.  Iron  and  Steel  .  22 

3.  Coal  .  22 

4.  Boot,  Shoe  and  Leather  Industries .  23 

5.  Lumber  .  24 

6.  Motor  Propulsion  .  24 

7.  Petroleum  .  25 

8.  Food  Products — Milling  .  26 


Ability  of  American  Industries  to  Take  Care  of 
War  Orders — Continued. 

9.  Meat  Products  . 27 

10.  Dried  Fruit  and  Canning .  28 

11.  Munitions  .  28 

12.  Copper  .  29 

13.  Textiles  .  30 

14.  Governmental  Control  of  Business .  30 

15.  Development  of  Managerial  Ability  and  Product¬ 

ive  Efficiency  .  32 

V.  Industry  After  the  War .  34 

VI.  Effect  of  the  War  Upon  Business  in  Canada 

Enlistment  and  Conscription  .  35 

Labor  .  35 

Canadian  War  Orders  .  36 

Expansion  of  Foreign  Trade .  36 

Cost  of  the  War  .  37 

Borrowing  and  Taxes  .  37 

Crops  and  the  Food  Supply .  38 

Lumber  . 39 

Munitions  . ; .  39 

*  Transportation  and  Shipping  .  39 

Coal  .  40 

Business  After  the  War  .  40 

Appendix  A 

Statistics  of  Manufactures . 43 

Appendix  B 

War  Contracts  Awarded  Between  April  1  and  July  31, 

1917  .  44 


4 


BUSINESS  AND  THE  WAR 


I.  CONDITIONS  AT  THE  OUTBREAK  OF 

THE  WAR 

1.  Domestic  Industry  and  Trade 

The  outlook  during  the  first  seven  months  o£ 
the  year  1914  preceding  the  outbreak  of  the  Euro¬ 
pean  War  was  as  dismal  in  the  United  States  as  it 
was  abroad.  Trade  and  industry  gradually  was 
going  from  bad  to  worse.  Enterprise  was  at  a 
low  ebb  and  all  the  principal  branches  of  business 
were  depressed.  The  railroads,  with  their  earnings 
slumping  and  their  credit  impaired,  were  face  to 
face  with  a  desperate  situation.  Uncertainty  and 
unrest  were  everywhere  and  various  adjustments 
had  to  be  made  because  of  legislative  proposals  and 
enactments  affecting  business  and  industry. 

These  general  conditions  of  depression  were 
clearly  indicated  by  the  Federal  Census  of  Manu¬ 
factures  in  1914.  Owing  to  the  contraction  in  in¬ 
dustry,  the  growth  in  capital  invested,  wage-earners 
employed,  and  value  of  products  was  less  during 
the  five  years  preceding  the  war,  or  the  period 
1909-1914,  than  during  the  previous  manufacturing 
census  period,  1904-1909.^ 

1  For  a  detailed  statement  as  to  the  development  of  industry  during 
the  period  1899-1914  see  Appendix  “A.” 

5 


2.  The  Situation  Abroad 

The  same  general  condition  of  affairs  existed  in 
other  leading  commercial  and  industrial  nations. 
The  immediate  causes  were  without  exception  local, 
differing  in  one  country  from  those  in  another,  yet 
in  all  cases  marked  by  the  same  effect — the  develop¬ 
ment  of  uncertainty  and  a  consequent  lack  of  enter¬ 
prise  and  activity  in  business  and  finance. 

The  Irish  question  had  placed  Great  Britain  on 
the  brink  of  civil  war.  Internal  trouble  and  radical 
policies  were  disturbing  France.  Old  political,  finan¬ 
cial,  and  personal  scandals  were  revived  by  the 
Caillaux-Calmette  affair.  The  French  government 
was  forced  to  postpone  extensive  refunding  opera¬ 
tions  which  in  turn  embarrassed  French  bankers 
who  were  carrying  large  amounts  of  the  unfunded 
obligations  of  the  Balkan  States.  Private  credit 
had  to  wait  on  both  of  these.  ’  In  Russia  also  there 
was  widespread  political  and  industrial  dissension 
which  in  the  months  immediately  preceding  the 
war  broke  forth  into  strikes  and  sanguinary  riots 
in  Petrograd  and  in  other  large  cities.  Russian 
business  was  unsettled,  failures  were  increasing, 
and  by  May,  1914,  so  great  apprehension  was  felt 
as  to  Russian  financial  affairs  that  a  conference  of 
bankers  was  called  by  the  Minister  of  Finance. 

Apparently  these  internal  difficulties  in  Russia, 
England,  and  France  made  the  time  propitious  for 
a  blow  from  the  outside;  and  there  are  not  wanting 
those  who  say  that  a  consideration  of  these  facts 
induced  the  Kaiser  to  precipitate  the  war. 

6 


II.  THE  WAR  BEFORE  THE  UNITED 
STATES  ENTERED 


1.  Effect  of  the  War  in  the  United  States — Industrial 

Paralysis 

The  immediate  effect  of  the  outbreak  of  hostilities 
in  Europe  upon  trade  and  industry  in  this  country 
was  to  intensify  the  unfavorable  tendencies  which 
already  existed.  For  a  time  trade  with  foreign 
countries  stopped  entirely.  The  mechanism  of  ex¬ 
change  was  disrupted.  The  apprehension  of  finan¬ 
cial  disaster  closed  the  New  York  and  other  stock 
exchanges  on  July  31,  1914.  They  did  not  com¬ 
pletely  resume  until  the  12th  of  the  following  De¬ 
cember.  As  a  consequence,  internal  trade  and  in¬ 
dustry  were  for  a  time  disorganized,  and  in  some 
sections,  as  the  South — where  the  outlet  for  staple 
commodities  was  shut  off  by  the  closing  of  the 
channels  of  foreign  trade — ^business  was  completely 
paralyzed. 

The  railroads,  too,  were  in  some  sections  pros¬ 
trated  by  the  trade  depression.  In  some  instances 
the  volume  of  freight  traffic  declined  to  less  than 
half  of  normal.  By  the  close  of  the  year  1914  rail¬ 
roads  representing  more  than  one-third  of  the  mile¬ 
age  of  the  country  were  declared  insolvent  and  passed 
to  the  control  of  the  Courts. 

Pig  iron  production  in  December,  1914,  had  fallen 
to  the  lowest  point  since  1908.  At  the  close  of 

7 


the  year,  the  steel  plants  were  reported  to  be  work¬ 
ing  at  only  thirty  per  cent  of  their  normal  capacity. 
These  conditions  continued  thru  the  winter,  of  1914- 
1915.  There  was  much  suffering  among  the  working 
classes,  and  in  all  the  large  cities  public  measures  had 
to  be  taken  for  the  relief  of  the  unemployed. 

2.  Revival  of  Trade  and  Industry 

Fortunately  before  the  end  of  the  winter  a  ten¬ 
dency  toward  more  favorable  conditions  became 
noticeable.  The  Alexander  Hamilton  Institute,  it 
will  be  recalled,  in  the  months  following  the  opening 
of  the  European  war  had  prepared  a  bulletin  show¬ 
ing  what  effects  on  business  in  this  country  might 
be  expected  from  the  abrupt  termination  of  normal 
commercial  relations.  These  effects  now  began  to 
be  evident.  Great  Britain,  France,  Russia,  Italy, 
and  Canada  began  to  purchase  from  us  foodstuffs, 
live  stock  and  raw  materials,  and  to  place  large  con¬ 
tracts  for  future  delivery  of  munitions,  war  stores 
of  all  kinds,  machinery  and  industrial  supplies. 
Competitive  bidding  stimulated  prices  and  the  need 
of  these  countries  was  such  that  they  were  glad  to 
pay  the  prices  asked. 

Under  these  influences  during  the  first  half  of 
1915,  the  industries  directly  stimulated  by  war  orders 
began  to  expand,  and  by  the  third  quarter  of  the 
year,  the  demand  for  all  commodities  was  on  such  a 
scale  that  all  lines  of  industrial  enterprise  were  stimu¬ 
lated,  domestic  trade  became  very  active,  and  foreign 
commerce  reached  previously  unknown  proportions. 

8 


3.  Beginning  of  War  Orders 

The  Allies  did  not  begin  their  heavy  purchases 
during  the  five  months  following  the  opening  of 
the  war.  Until  the  end  of  1914,  war  orders  had 
been  received  in  the  United  States  to  the  extent  of 
only  $190,719,500,  divided  approximately  as  follows: 

Sugar  .  $7,627,000 

Dry  Goods  (miscellaneous  textile  fabrics,  etc.)  . .  19,583,000 

Iron  and  steel  products  .  21,084,500 

Shoes,  harness  and  miscellaneous  leather  goods..  9,705,000 

Automobile  trucks,  autos  and  vehicles .  12,403,000 

Arms,  ammunition,  guns,  weapons,  etc . 27,890,000 

Horses,  pliers,  horseshoe  calks,  canned  goods,  cans, 
canteens,  rubber  goods,  coal,  meat  products, 
wheat,  submarines,  shaving  brushes,  etc .  92,427,000 

The  great  bulk  of  the  purchases  and  contracts  of 
the  Allies  in  this  country  were  made  during  1915. 
Estimates  of  war  orders  received  by  American 
manufacturers  during  that  year  from  the  Allied 
governments  indicate  that  the  total  reached  the  sum 
of  $2,000,000,000. 

4.  Rapid  Growth  of  Foreign  Trade 

Our  exports  of  merchandise,  as  was  to  be  ex¬ 
pected,  advanced  by  leaps  and  bounds.  The  total 
value  of  merchandise  sent  abroad  for  the  years 
1913-1917  (twelve-month  periods  ending  May  31st) 
was  as  follows: 


1913  .  $2,440,712,975 

1914  .  2,370,912,020 

1915  .  2,657,113,968 

1916  .  4,137,344,345 

1917  . .  6,182,886,159 


9 


The  great  increase  in  the  exportation  of  war 
munitions,  supplies,  and  accessories  was  a  direct 
reflection  of  war  orders  as  well  as  of  the  increased 
industrial  activity  in  this  country  which  had  been 
stimulated  by  the  European  conflict.  This  increase 
is  shown  in  the  following  table. 


EXPORTS  OF  WAR  MUNITIONS  AND  SUPPLIES,  1913-1917 


(Compiled  from  Reports  of  Bureau  of  Foreign  and  Domestic 
Commerce  for  Fiscal  Years  Ending  June  30) 

(Eleven 

Months) 

1913-14  1914-15  1915-16  1916-17 

War  Munitions 


Explosives  .  $6,272,207  $41,476,188  $437,081,928  $756,862,299 

Aeroplanes  .  226,149  1,541,446  7,002,005  3,095,330 

Firearms  .  3,442,297  9,474,947  18,065,485  84,758,564 

Wire  .  9,579,773  16,838,941  47,678,939  44,078,132 


Total  .  $19,520,426  $69,331,522  $509,828,357  $888,794,325 

War  Accessories 

Automobiles  .  $33,198,806  $68,107,818  $120,002,296  $106,778,246 

Motorcycles  .  1,234,194  1,494,176  3,369,616  3,051,115 

Scientific  Instru¬ 
ments  1  .  3,450,404  4,357,036  7,344,027  7,707,748 


Total  . $37,883,404  $73,959,020  $130,715,939  $117,537,109 

War  Supplies 

Horses  and  Mules  $4,079,793  $76,772,677  $96,491,458  $83,030,779 

Brass  .  7,472,476  20,544,559  164,876,044  361,726,725 

Brcadstuffs  .  165,282,385  573,823,676  435,679,323  510,961,137 

Chemicals,  Drugs 
(Dyes  and  Medi¬ 
cines)  .  27,524,672  46,380,986  124,478,671  168,784,663 

Coal  and  Coke...  62,710,827  58,210,615  69,635,154  76,728,107 

Copper  .  149,479,645  99,778,177  174,677,609  291,423.558 

Boots  and  Shoes.  18,980,729  27,477,120  47,890,172  33,870,319 

Metal  Working 

Machinery  .  14,001,359  28,162,968  61,315,032  76.348.162 

Lead  . 2,610,207  9,044,479  13,823,004  14,704,259 


Total  . $452,142,093  $840,155,257  $1,088,866,467  $1,517,577,709 


*  Includes  telephones,  telef^raph  and  wireless  instruments. 

10 


It  will  be  noted  that  the  exports  of  the  principal 
items  of  munitions  and  war  supplies  during  the 
fiscal  years  1914-1917,  as  specified  in  the  foregoing 
statement,  reached  the  enormous  total  of  $3,152,692,- 
527.  The  exportation  of  war  munitions  (explosives, 
aeroplanes,  firearms,  and  wire)  shows  a  remarkable 
advance  from  $19,520,426  in  1914  to  $888,794,325 
in  1917  (eleven  months  only).  Other  articles  of 
export  showing  large  increase  during  the  same 
period  were  automobiles,  motor  trucks,  horses  and 
mules,  brass,  foodstuffs,  chemicals,  drugs,  copper, 
metal  working  machinery  and  lead. 

5.  Foreign  Loans  and  Gold  Importations 

This  immense  growth  in  the  volume  of  exports, 
however,  produced  a  large  trade  balance  in  favor 
of  this  country  which  foreign  nations  met  by  the 
sale  of  securities  or  the  shipping  of  gold.  Loans 
aggregating  more  than  two  billion  dollars  were 
floated  in  this  country  by  Great  Britain,  France, 
Russia,  and  Italy.  Whereas  in  1915  the  exportation 
of  gold  by  the  United  States  exceeded  all  imports  by 
$68,465,097;  in  1916  imports  exceeded  our  exports 
of  gold  by  $338,857,789,  and  in  1917  by  $775,502,734. 

6.  New  Capital  Issues 

The  volume  of  the  first  flood  of  war  orders  were 
unexpected.  It  was  also  practically  assumed  that 
these  orders  could  be  handled  by  existing  companies. 
After  the  first  half  of  1915,  however,  it  was  seen 

11 


that  the  extent  of  the  business  required  additional 
financing  on  a  large  scale.  The  authorized  capital 
stock  of  new  companies,  organized  between  August 
1,  1914,  and  January  1,  1917,  and  largely  the  out¬ 
growth  of  war  conditions,  totaled  $959,854,000,  or 
almost  one  billion  dollars.  These  companies  were 
divided  as  follows: 


Oil  and  Gas .  $548,316,000 

Ship  Operating  and  Building .  108,972,000 

War  Munitions  and  Supplies .  134,027,000 

Dyes  and  Chemicals .  168,539,000 


$959,854,000 

7.  Reduction  in  Foreign  Demands 

Relatively  few  new  war  orders,  especially  for 
munitions  and  war  supplies,  were  placed  in  this 
country  by  the  Allies  in  1916.  By  the  end  of  1915, 
the  Allied  governments  had  negotiated  contracts 
covering  most  of  their  needs  with  firms  and  cor¬ 
porations  whose  reliability  they  had  tested.  Com¬ 
paratively  little  bidding  for  new  business  remained 
to  be  done.  The  majority  of  orders  placed  or 
continued  were  for  raw  or  semi-finished  products, 
the  Allies  having  by  this  time  developed  their  own 
manufacturing  industries  to  a  point  where  they 
could  more  nearly  fill  the  need  for  munitions  re¬ 
quired  for  their  operations.  Opportunity  was  there¬ 
by  afforded  the  United  States  to  provide  for  the 
arming  and  equipping  of  its  own  armies  from  the 
industrial  facilities  which  the  demands  of  the  Allies 

.  12 


had  previously  created.  Large  resources  in  the  form 
of  munitions  manufacturing  equipment  were  released 
for  the  service  of  the  United  States  just  at  the  mo¬ 
ment  when  this  nation  had  determined  to  enter  the 
war. 


13 


III.  AMERICA’S  ENTRANCE  INTO  THE  WAR 


1 .  Immediate  Effects 

Our  entrance  into  the  war  against  Germany  on 
April  6,  1917,  gave  an  additional  impulse  to  indus¬ 
trial  and  trade  activities.  Its  effect  was  threefold: 
(1)  the  slowing  down  in  the  production  of  muni¬ 
tions  immediately  ceased  as  our  pwn  demands  took 
up  the  slack  caused  by  the  cancelation  of  the  war 
orders  of  the  Allies;  (2)  the  estimates  worked  out 
for  arming  and  equipping  our  army  and  navy  sur¬ 
passed  in  magnitude  all  previous  war  purchases  and 
gave  assurance  of  unprecedented  activities  in  do¬ 
mestic  trade  and  industry;  and  (3)  our  own  pur¬ 
chases  were  augmented  by  those  of  our  more  needy 
allies — France,  Italy,  Russia,  and  Great  Britain,  to 
whom  we  extended  liberal  credits. 

The  only  disturbing  element  in  all  this  was  the 
uncertainty  as  to  the  extent  and  method  of  Gov¬ 
ernment  regulation  of  prices,  wages,  and  profits. 
Certain  branches  of  industry  have  felt  it  to  be  un¬ 
safe  to  go  ahead  with  productive  activities  until  a 
definite  policy  of  dealing  with  these  factors  has 
been  worked  out  and  announced. 

2.  The  War  Budget  of  the  United  States 

The  first  war  estimates  submitted  by  the  Secre¬ 
tary  of  the  Treasury  called  for  an  outlay  of  five 
billion  dollars.  Of  this  large  sum  three  billions  was 

-  14 


to  be  made  immediately  available  for  the  mobiliza¬ 
tion,  equipment,  and  subsistence  of  our  fighting 
forces.  The  remaining  two  billions  was  to  be  loaned 
to  our  allies  for  the  purpose  of  buying  war  supplies 
in  the  United  States.  But  in  less  than  three  months 
after  our  declaration  of  war  against  Germany  it 
was  found  that  this  financial  program  would  be 
entirely  inadequate.  On  July  27th,  Secretary  Mc- 
Ado0  announced  that  the  estimated  Government 
requirements  for  war  and  other  purposes  during 
the  fiscal  year  ending  June  30,  1918,  will  aggregate 
in  round  numbers  eleven  billion  dollars. 

At  the  time  of  this  writing  appropriations  of 
$11,651,194,000  either  have  already  been  made  or 
are  now  pending.  Additional  loans  of  three  billion 
dollars  to  our  allies,  it  was  announced,  will  also 
have  to  be  made — that  is,  a  total  credit  of  five 
billion  dollars  for  the  year.  This  will  raise  the 
appropriations  for  the  fiscal  year  to  the  large  total 
of  seventeen  billion  dollars. 

Of  the  appropriations  already  made  or  contem¬ 
plated,  $8,673,000,000  are  to  be  used  for  army  pur¬ 
poses  and  $1,324,000,000  for  the  navy.  For  the 
conduct  of  the  various  regular  departments  and  for 
special  projects,  $1,200,000,000  had  already  been 
appropriated  by  the  middle  of  July.  On  the  basis 
of  a  conservative  estimate,  the  effect  of  our  en¬ 
trance  into  the  war  has  been  to  increase  the  de¬ 
mands  upon  the  industrial  resources  of  our  country 
— agriculture,  mining,  and  manufacturing, — ^by  eight 
or  nine  times  the  combined  demand  of  the  Allies 

15 


at  the  time  when  their  contracts  and  purchases  here 
were  at  their  highest  point.  It  is  impossible  to 
describe  in  detail  the  contracts  or  purchases  for 
munitions  and  supplies  already  made  for  the  army 
and  navy.  They  comprise  thousands  of  different 
classes  of  commodities  and  affect  all  branches  of 
manufacturing  and  mining.^ 

The  industrial  demand  created  by  these  orders 
covers  the  usual  lists  of  supplies  and  munitions  pur¬ 
chased  by  the  War  and  Navy  Departments.  They 
do  not  include  the  special  and  extensive  projects 
represented  by  the  program  of  the  Shipping  Board, 
the  Aircraft  Production  Board,  and  the  Board 
charged  with  the  erection  of  cantonments  or  camps 
for  the  soldiers. 

3.  The  Building  of  Ships 

The  Emergency  Fleet  Corporation,  which  is  owned 
and  operated  by  the  United  States  Shipping  Board, 
has  already  received  an  appropriation  of  $500,000,- 
000,  and  it  is  reported  that  an  additional  sum  of 
like  amount  will  be  requested  in  the  near  future. 
The  plans  of  the  Corporation  recently  announced 
by  General  Goethals  will  probably  be  adopted  by 
his  successor.  They  provide  for  the  construction 
of  425  ships  of  all  sorts  with  an  aggregate  carry¬ 
ing  capacity  of  1,860,800  tons.  Contracts  for  an¬ 
other  100  wooden  ships  are  in  negotiation.  For 

1 A  detailed  list  of  War  Orders  by  the  United  States,  from  the 
time  of  our  entrance  into  the  war  up  to  July  31,  1917,  so  far  as 
information  is  available,  arranged  by  industries,  will  be  found  in 
Appendix  “B.” 


-16 


obtaining  the  greatest  amount  o£  the  most  service¬ 
able  ocean  transportation  within  the  shortest  time 
chief  reliance  will,  however,  be  placed  in  the  con¬ 
struction  of  fabricated  steel  ships  of  standard  de¬ 
sign.  By  the  use  of  existing  facilities,  and  by  the 
erection  of  two  Government-owned  shipyards,  it  is 
hoped  to  produce  during  the  next  two  years  400 
of  these  standardized  ships  of  an  aggregate  carry¬ 
ing  capacity  of  2,500,000  tons.  These  plans  are  to 
be  further  supplemented  by  the  commandeering  and 
completion  of  1,500,000  tons  of  shipping  now  under 
construction  in  private  shipyards. 

4.  The  Aerial  Fleet 

In  accordance  with  the  recommendations  of  the 
Aircraft  Production  Board  of  the  Council  of  Na¬ 
tional  Defence  an  appropriation  of  $640,000,000 
has  also  been  made  by  Congress  and  approved  by 
President  Wilson  for  the  construction  of  an  air 
fleet  and  the  training  of  aviators.  It  is  planned  to 
construct  during  the  next  year  or  eighteen  months 
about  20,000  complete  planes  together  with  an  extra 
motor  for  each  machine.  For  the  framework  of  these 
planes,  twenty-four  million  feet  of  spruce  lumber 
will  be  required,  and  to  secure  this,  it  will  be  neces¬ 
sary  to  work  out  special  lumbering  operations.  The 
linen  to  cover  the  framework  will  be  imported 
from  Great  Britain.  The  motors,  which  are  to  be 
standardized,  will  be  constructed  by  automobile  and 
auto  truck  companies,  and  this  work,  if  it  is  deemed 
necessary,  will  take  precedence  over  the  manufac- 


ture  of  pleasure  vehicles.  The  production  of  the 
steel  required  for  the  motors  will  not  appreciably 
interfere  with  other  demands  for  steel  products. 

Elaborate  and  highly-specialized  instruments  for 
measuring  altitudes,  determining  directions,  and  for 
other  purposes,  must  also  be  provided;  and  as  most 
of  these  instruments  have  hitherto  been  produced  in 
Germany,  the  demand  for  their  production  may  be 
expected  to  stimulate  the  development  of  practically 
a  new  industry  in  this  country. 

The  erection  of  twenty-four  training  camps,  at  a 
cost  of  three  to  five  million  dollars  each,  will  also 
add  greatly  to  the  demand  for  lumber,  hardware, 
and  other  materials. 

5.  Cantonments 

The  training  camps  or  cantonments  for  officers 
and  men  selected  under  the  Army  Act  of  1917  will 
require  for  their  construction  a  large  amount  of 
lumber  and  other  materials.  There  are  to  be  six¬ 
teen  cantonments  in  all,  capable  of  accommodating 
43,000  officers  and  1,034,270  men,  and  involving 
with  furnishings  an  outlay  of  approximately 
$75,000,000.  Some  of  the  principal  items  of  con¬ 
struction  cost  are  as  follows: 


Buildings  .  $40,290,800 

Hospitals  .  2,014,500 

Water  and  Sewer  Systems .  2,490,000 

Electric  Lighting  .  604,000 

Roads  . 5,036,000 

Ice  Boxes  .  270,000 


18 


$50,705,300 


Altho  the  cantonments  will  vary  in  size,  each  will 
when  completed  be  a  city  of  from  35,000  to  46,000 
inhabitants,  having  its  own  sewer  system,  water  and 
lighting  plants,  hospital,  bakeries,  and  similar  equip¬ 
ment.  Some  idea  of  the  quantities  of  materials 
required  and  of  the  industries  affected  may  be 
gathered  from  the  fact  that  each  cantonment  will 
require  for  its  erection  26,000,000  feet  or  1,325  car 
loads  of  lumber;  1,700,000  feet  of  wall  board;  85,000 
feet  of  piping  for  sanitation  and  other  services; 
6,457  solid  board  doors;  923  glazed  doors;  515 
screen  doors;  37,000  square  feet  of  wire  screening; 
37,000  window  shades;  32,000  squares  of  roofing; 
2,665  kegs  of  nails;  4,665  casks  of  Portland  cement; 
1,440  cubic  yards  of  sand;  5,123  cubic  yards  of 
stone;  and  other  building  material  in  similar  pro¬ 
portions. 


19 


IV.  ABILITY  OF  AMERICAN  INDUSTRIES 
TO  TAKE  CARE  OF  WAR  ORDERS 

Obviously,  the  important  question  under  present 
conditions  is:  To  what  extent  can  American  in¬ 
dustries  take  care  of  our  own  war  orders?  It  is 
almost  equally  important  to  know  whether  they  can 
take  care  of  the  requirements  of  our  allies  and  to 
what  extent  war  orders  will  interfere  with  produc¬ 
tion  for  private  purposes.  The  answer  to  these  ques¬ 
tions  varies  from  industry  to  industry.  No  general 
statement  can  be  given.  Each  industry  must  be 
considered  from  the  standpoint  of  its  own  facilities, 
conditions,  and  the  demands  made  upon  it. 

1.  Transportation 

The  key  to  the  internal  industrial  situation  is, 
unquestionably,  the  railroads,  just  as  the  successful 
prosecution  of  the  war  in  an  international  way  is 
dependent  upon  ships.  The  movement  of  raw  ma¬ 
terials  to,  and  of  finished  products  from,  industrial 
establishments,  as  well  as  the  constant  transporta¬ 
tion  of  food  products  to  our  industrial  workers  and 
fighting  forces,  depends  upon  railroad  facilities 
and  railroad  efficiency.  Marvelous  developments  in 
operating  efficiency  have  already  been  made  under 
the  direction  of  the  National  Railroad  Board  which 
has  a  quasi-official  status  under  the  Council  of  Na- 

20 


tional  Defense.  The  railroad  companies,  however, 
are  handicapped  by  the  fact  that  previous  to  the 
war  their  earnings  were  low  and  their  credit  so  im¬ 
paired  that  sufficient  capital  for  development  work 
could  not  immediately  be  secured.  Under  present 
conditions  it  is  necessary  to  give  preference  to  the 
shipment  of  certain  commodities  such  as  foodstuffs, 
raw  materials  and  coal.  As  time  goes  on,  the  de¬ 
mands  of  the  Government  may  be  expected  to  absorb 
more  and  more  of  the  available  transportation  facili¬ 
ties  to  the  exclusion  of  private  business.  Deliveries 
will  undoubtedly  be  uncertain,  since  it  will  be  pos¬ 
sible  to  handle  private  freight  only  after  war  re¬ 
quirements  are  met.  The  solution  of  the  problem, 
from  the  standpoint  of  the  business  world,  is  de¬ 
pendent  upon  one  of  two  factors:  either  (1)  the 
maintenance  of  the  present  system  of  operation  with 
an  increasing  amount  of  governmental  interference, 
or  (2)  the  practical  direction  of  the  operation  of 
the  railroads  by  the  Government  thru  the  present 
managers  with  the  additional  provision  that  much- 
needed  capital  for  establishing  better  terminal  fa¬ 
cilities,  more  trackage,  and  the  purchase  of  more 
equipment  be  guaranteed  by  the  Government.  The 
latter  plan  many  think  the  more  desirable  from  the 
point  of  view  of  railroad  security  holders  and  pos¬ 
sibly  of  all  other  interests  concerned.  Under  what¬ 
ever  program  adopted,  the  industries  working  on 
private  contracts  will  undoubtedly  find  that  their 
activities  will  be  somewhat  interfered  with  and  re¬ 
stricted. 


21 


2.  Iron  and  Steel 

Since  the  outbreak  of  the  European  war  the  steel 
industry  has  added  to  its  productive  facilities  103 
open-hearth  furnaces  with  an  aggregate  annual 
capacity  of  4,205,000  tons.  During  the  first  half 
of  1917  construction  was  started  of  72  more  open 
hearth  furnaces  and  eleven  converters  for  duplex¬ 
ing  and  Bessemer  plants,  which  will  add  5,015,000 
tons  a  year  to  output.  Despite  these  extensions  it 
is  now  apparent  that  the  steel  industry  cannot  meet 
the  requirements  of  the  war  without  interference 
with  present  contracts  and  the  probable  elimination 
of  almost  all  private  contracts  for  several  years  to 
come.  It  is  estimated  that  the  United  States  re¬ 
quirements  alone  will  absorb  forty  per  cent  of  the 
output  of  the  mills  and  furnaces.  The  agreement  of 
the  steel  companies  to  place  the  .definite  ordering  of 
output  under  the  control  of  the  Government  has 
clarified  the  situation  from  a  war  standpoint.  This 
control  may  be  expected  to  be  gradually  tightened 
to  the  exclusion  whenever  necessary  ®f  the  private 
consumer  of  steel,  especially  in  unessential  industries. 

3.  Coal 

The  available  supply  of  coal,  as  in  the  case  of 
steel  products,  is  directly  bound  up  with  the  trans¬ 
portation  situation.  As  a  matter  of  fact,  steel  is 
itself  dependent  upon  coal,  for  an  essential  to  steel 
produetion  is  coke,  and  coke  is  made  from  coal. 
The  bituminous  coal  supply  is  capable  of  great  ex¬ 
pansion  provided  cars  can  be  furnished  for  loading 

22 


and  transportation.  At  the  present  time  the  matter 
of  Government  control  has  not  been  definitely  de¬ 
termined  and  is  obviously  dependent  upon  what 
future  action  is  taken  upon  the  transportation 
problem.  Domestic  and  other  private  producers  of 
coal  may  expect  to  secure  a  supply  of  coal  sufficient 
to  cover  only  their  necessary  requirements.  In¬ 
dustries  which  are  not  basic  or  essential  may  have 
their  fuel  supply  withdrawn  altogether  because  of 
the  existing  limitation  on  transportation  facilities. 
It  would  seem  at  the  present  time  that  coal  pro¬ 
ducers  may  be  authorized  to  pool  their  output 
which  will  be  distributed  by  the  producers  under 
Government  direction  at  fixed  prices.  Contracts  with 
coal  companies  negotiated  by  unessential  industries 
cannot  be  expected  to  hold  in  the  face  of  v/ar  con¬ 
ditions. 


4.  Boot,  Shoe  and  Leather  Industries 

The  boot  and  shoe  factories  appear  to  be  abun¬ 
dantly  able,  despite  their  present  large  war  orders,  to 
take  care  of  all  government  contracts  without  any 
dislocation  of  normal  business.  The  recent  order  of 
the  government  for  10,000,000  pairs  of  shoes  rep¬ 
resents  but  one-tenth  of  the  annual  output  of  the 
factories  making  men’s  shoes,  which,  according  to 
the  Census  of  1914,  produce  about  98,000,000  pairs 
of  shoes  each  year.  The  industry  is  of  course  de¬ 
pendent  upon  the  available  supply  of  hides  and 
leather  which  is  limited  in  comparison  with  the 
present  great  demand.  Great  Britain  has  already 

23 


found  it  absolutely  necessary  to  control  the  leather 
supply,  and  on  the  occasion  of  granting  its  shoe 
contracts  our  Government  found  it  at  first  expedient 
to  arrange  for  the  necessary  leather  supply. 

5.  Lumber 

There  seems  to  be  no  reason  for  believing  that 
the  lumber  industry  will  experience  any  difficulty 
in  meeting  the  extra  requirements  which  the  entrance 
of  the  United  States  into  the  war  will  place  upon 
it.  In  some  parts  of  the  country  the  producers 
seemed  to  anticipate  a  shortage  of  labor,  but  on  the 
whole  the  great  obstacle  to  a  large  increase  in  pro¬ 
duction  has  been,  as  in  the  case  of  other  industries, 
the  inability  to  get  adequate  facilities  for  transpor¬ 
tation.  The  Council  of  National  Defense  has  issued 
a  statement  to  the  effect  that  the  Government,  would 
require  only  about  five  per  cent  of  the  country’s 
annual  output,  and  that  this  should  not  cause  much 

dislocation  of  the  general  market. 

• 

6.  Motor  Propulsion 

The  Allies  have  been  buying  of  us  many  of  the 
motor  trucks  and  aero-motors  used  in  the  war  dur¬ 
ing  the  last  three  years.  The  output  of  motor 
vehicles  during  the  year  1916,  reached  the  figure 
1,617,708,  of  which  98,000  were  motor  trucks.  Dur¬ 
ing  the  year  the  number  of  manufacturers  of  auto¬ 
mobiles,  motor  trucks  and  engines  increased  from 
512  to  572.  There  were  at  the  beginning  of  1917, 
211  recognized  manufacturers  of  motor  trucks  of 

24 


which  the  estimated  production  for  1917  is  165,000 
— an  increase  of  67,000  over  last  year’s  production. 
Producers  of  gasoline  estimate  that  the  production 
of  all  kinds  of  motor  vehicles  for  1917  will  be 
half  a  million  in  excess  of  that  for  1916. 

In  this  connection  it  is  interesting  to  note  that 
when  the  Government  called  for  bids  on  the  require¬ 
ments  of  the  army,  the  companies  responded  with 
bids  for : 

(1)  Passenger  Cars,  to  be  produced,  taking  the  total  offers  of 
all  the  companies,  at  the  rate  of  30,000  per  month  ap¬ 
proximately. 

(2)  Army  Trucks,  at  the  rate  of  1,526  per  month,  nearly  a 
third  of  which  could  have  been  delivered  within  twenty- 
four  hours,  and  the  latest  delivery  to  begin  in  four  months. 

(3)  Army  Chassis,  Types  A  and  B,  at  the  rate  of  about  7,321 
a  month,  deliveries  to  begin  from  immediately  to  an  aver¬ 
age  of  about  three  months. 

These  figures  give  some  idea  of  the  preparedness 
of  the  motor  industry  to  meet  the  present  needs  of 
the  country.  It  is  not  thought  that  the  war  de¬ 
mands  will  interfere  with  the  production  of  pleasure 
vehicles. 

7.  Petroleum 

The  significant  fact  in  connection  with  the  pro¬ 
duction  of  petroleum  with  its  various  products  in 
view  of  the  present  war  situation  is*  that  the  stock 
in  storage  at  the  beginning  of  1917,  was  20,000,000 
barrels  less  than  that  at  the  beginning  of  1916, 
showing  that  consumption  already  had  exceeded 
production.  In  addition  it  is  authoritatively  esti¬ 
mated  that  the  increased  use  of  the  automobile 

25 


combined  with  the  war  demand  for  petroleum  would 
cause  consumption  this  year  to  exceed  production 
by  as  much  as  60,000,000  barrels. 

In  the  face  of  this  situation,  the  refining  capacity 
of  the  country  appears  to  be  inadequate  to  meet  the 
increased  demand  for  gasoline  and  other  oil  prod¬ 
ucts.  Without  exception,  the  large  refining  com¬ 
panies  either  have  built  or  are  starting  to  build 
additions  to  their  present  plants  or  entirely  new 
ones.  Yet  the  lack  of  steel  material  prevents  the 
extension  of  production,  while  the  lack  of  transport 
facilities  is  also  a  distinct  handicap  to  the  great 
producing  companies.  Various  devices  for  increas¬ 
ing  the  efficiency  of  gasoline  have  been  tested  and 
some  substitutes  have  also  been  tried  in  Europe. 
Successful  experiments  of  this  kind  may  become 
effective  in  relieving  the  gasoline  shortage. 

8.  Food  Products — Milling 

The  milling  industry  of  the  United  States  is  amply 
prepared  to  meet  any  additional  demands  upon  its 
capacity  which  a  state  of  war  may  impose.  During 
the  first  six  months  of  1917  there  was  hardly  a  week 
during  which  the  mills  of  any  one  of  the  large  mill¬ 
ing  centers  operated  at  capacity.  In  general  the 
operation  seems  to  have  been  at  perhaps  two-thirds 
capacity.  Early  in*  the  year  it  was  reported  that 
there  was  practically  no  export  trade  except  small 
lots  to  South  American  ports.  Europe  was  increas¬ 
ing  wheat  importation  to  the  detriment  of  the  flour 
trade. 


26 


The  facilities  of  the  country  in  the  milling  industry 
seem  to  be  ample  for  handling  all  the  wheat  that 
is  delivered  to  the  mills.  The  chief  obstacle  to  the 
trade  is  the  present  inability  of  the  railroads  to 
provide  adequate  transportation  facilities  for  grain 
and  flour. 

9.  Meat  Products 

The  packing  industry  is  also  in  a  state  of  pre¬ 
paredness  to  meet  any  of  the  demands  of  the 
moment.  The  packing  industry  is  in  fact  already 
fully  mobilized  to  meet  the  needs  of  the  Govern¬ 
ment.  The  limit  to  its  possibilities  is  the  inadequacy 
of  transportation  facilities  for  moving  finished  prod¬ 
ucts,  and  the  scarcity  of  raw  materials  or  meat 
cattle.  As  a  matter  of  precaution  the  Federal  Gov¬ 
ernment  in  April  issued  instructions  to  the  meat 
packers  in  Chicago  to  maintain  a  permanent  reserve 
of  5,000,000  pounds  of  meat  and  similar  foodstuffs 
for  army  purposes. 

In  ofifering  the  entire  packing  industry  to  the 
Government,  Mr.  Thomas  E.  Wilson,  one  of  the 
large  packers  said,  in  part: 

‘^The  Commissary  Department  of  the  Army  and 
Navy  will  find  in  the  packing  industry  vast  organ¬ 
izations — armies  in  themselves — ready  at  hand  to 
sustain  our  forces  in  the  field  as  no  armies  or  navies 
have  ever  before  been  sustained.  The  meat-packing 
and  food  product  industries  can  be  mobilized  in  this 
national  service  without  a  hitch. 

^‘Not  only  are  they  ready  to  render  full  service 

27 


on  an  hour’s  notice  to  the  military  and  naval  forces 
of  our  country,  but  to  continue  serving  the  civilian 
population  without  a  break.  I  venture  to  say  that 
in  no  period  in  the  history  of  any  nation  has  the 
food  question — particularly  as  it  applies  to  the  meat 
industry — ^been  less  of  a  problem  in  case  of  war.” 

10.  Dried  Fruit  and  Canning 

The  business  of  the  dried  fruit  and  dehydrated 
food  companies  has  been  very  much  stimulated  by 
the  war  in  Europe,  for  much  of  their  product  has 
been  used  for  the  allied  armies.  Their  only  limit 
is  the  supply  of  raw  materials  and  of  transport 
facilities. 

The  Canning  Industry,  exceedingly  important  in 
time  of  war,  is  at  present  restricted  chiefly  by  the 
fact  that  sheet  metal  for  the  manufacture  of  cans  is 
practically  sold  out,  no  more  being  offered  on  the 
market  for  delivery  for  many  months  to  come.  This 
is  in  fact  a  problem  of  the  steel  industry. 

1 1 .  Munitions 

When  the  year  1917  opened,  the  munitions  in¬ 
dustry  of  the  United  States  was  amply  prepared  to 
meet  any  demands  which  might  be  made  upon  it 
as  a  result  of  the  nation’s  entering  the  war.  In 
the  first  place,  the  United  States  abounds  in  highly 
efficient  machine  shops  which  could  readily  be  di¬ 
verted  to  the  manufacture  of  munitions.  In  the 
second  place,  the  demands  made  upon  the  industry 
of  this  country  by  the  Allies  during  nearly  three 

-  28 


years  of  war  have  brought  about  an  industrial  pre¬ 
paredness  hardly  to  be  equaled. 

Before  April,  1917,  as  if  to  give  the  nation  an 
opportunity  to  munition  its  own  armies,  the  Allies 
found  themselves  able  to  produce  all  the  finished 
munitions  which  they  required,  demanding  instead 
raw  materials  and  partly-finished  product  from  Am¬ 
erican  industries.  The  chief  difficulty  to  be  over¬ 
come  in  munitions  production  lay  in  the  adaptation 
of  existing  machinery  to  the  manufacture  of  the 
specifications  of  our  government,  which  differ  from 
those  of  foreign  countries. 

1 2.  Copper 

When  it  was  evident  that  the  United  States  would 
be  in  the  copper  market  with  large  demands  as  a 
result  of  entry  into  the  war,  small  doubt  seems  to 
have  been  expressed  as  to  the  ability  of  the  producers 
to  meet  the  demand.  The  unprecedented  demand 
for  copper  during  the  last  two  years  has  led  some 
leading  producers  to  open  old  mines,  to  develop  new 
ones  and  to  construct  additions  to  smelters  and 
refineries.  These  enlargements  have  added  enor¬ 
mously  to  producing  capacity,  thereby  insuring  an 
output  fully  adequate  for  a  large  increase  over 
last  year’s  requirements.  It  was  estimated  that  the 
Government  as  manufacturers  ordering  thro  the 
Council  of  National  Defense  would  need  250,000,000 
pounds  before  the  close  of  the  year — about  an 
eighth  of  the  probable  output  of  the  country  for 
the  year.  All  the  large  copper  producing  companies 

29 


of  this  country  have  been  given  orders  to  operate 
their  plants  at  full  capacity  so  that  the  requirements 
of  this  Government  as  well  as  those  of  the  Allies 
can  be  taken  care  of  without  interruption,  and  the 
regular  consumption  supplied  with  as  little  delay  as 
possible. 

1 3.  Textiles 

It  was  only  at  the  beginning  of  the  European  war 
that  the  textile  industry  held  war  orders  of  any 
magnitude.  During  1914,  the  war  orders  for  dry 
goods,  miscellaneous  textile  fabrics,  etc.,  amounted 
in  all  to  about  $19,583,000.  During  1915  they  rose 
to  about  $40,000,000.  The  allied  industries,  after 
the  first  rush  of  equipment,  were  able  to  provide 
the  clothing  for  their  armies.  As  a  result,  the  ex¬ 
pansion  of  the  textile  industry  during  the  past  three 
years  has  been  one  of  the  indirect  results  of  the 
war,  owing  to  the  fact  that  people  in  this  country 
had  more  money  to  spend.  As  a  matter  of  fact, 
the  rate  of  expansion  has  been  less  during  the  war 
than  it  was  in  the  years  immediately  preceding. 
The  industry  is  able  to  handle  all  Government  re¬ 
quirements,  the  only  drawback  at  present  being  in 
the  supply  of  wool.  England  has  commandeered  the 
wool  of  all  her  possessions  and  the  United  States 
is  practically  limited  to  the  domestic  supply. 

14.  Governmental  Control  of  Business 

Up  to  the  present  time  there  has  been  no  radical 
interference  with  business  or  industry  by  the  Gov- 

30 


eminent.  Thru  various  committees  of  the  Advisory 
Commission  of  the  Council  of  National  Defense 
there  has  been  developed  a  tendency  toward  the 
fixing  of  prices  for  Government  work  by  confer¬ 
ence  and  agreement.  There  has  been  no  objection 
to  reasonable  and  fair  profits.  In  the  case  of  the 
Shipping  Board,  Emergency  Fleet  Corporation,  the 
building  of  cantonments  and  other  activities  of  the 
War  and  Navy  Departments,  there  has  been  a  dis¬ 
tinct  development  in  the  way  of  relating  prices, 
not  to  market  conditions,  but  to  actual  costs  of  pro¬ 
duction  with  the  concession  to  the  contractor  or 
salesman  of  a  reasonable  percentage  of  profit,  or  a 
fixed  fee  for  his  services.  Elaborate  investigations 
at  the  direction  of  the  President  are  now  being  made 
by  the  Federal  Trade  Commission  as  to  costs  of 
production  of  coal,  iron  and  steel,  and  meat  products. 

It  would  seem  that  the  facts  thus  obtained  are  to 
be  .used  in  a  reasonable  way  for  price  determina¬ 
tion  and  for  the  prevention  of  exorbitant  profits. 
Evidently  no  more  extreme  Governmental  control 
of  industry  is  contemplated,  and  will  not  be  under¬ 
taken  unless  manufacturers  and  other  producers 
become  unreasonable  as  to  prices  and  profits.  The 
commandeering  of  private  shipyards  has  had  for  its 
primary  object  the  expediting  of  work.  The  failure 
to  take  more  drastic  action  toward  railroad  control 
is  a  clear  indication  of  the  Government’s  reluctance 
to  use  the  extreme  power  which  it  possesses. 

In  certain  industries,  as  in  the  case  of  iron  and 
steel,  coal,  and  the  transportation  industries  at  the 

31 


present  time,  it  will  probably  become  necessary  for 
the  Government  to  direct  absolutely  the  production 
and  distribution  of  commodities  and  services.  The 
need  for  this  action  will  become  more  imperative  as 
the  war  progresses.  At  the  present  time,  priority 
orders  are  issued  practically  on  the  assumption  of 
the  cooperation  of  certain  industries  and  without 
any  direct  coercive  force.  The  use  of  compulsion 
may  become  essential  as  the  pressure  on  industry 
increases.  Even  then,  of  course,  the  private  com¬ 
panies  will  direct  the  work  itself. 

It  is  also  apparent  that  private  undertakings,  not 
working  on  official  contracts  directly  or  indirectly, 
will  find  it  more  and  more  difficult  to  secure  raw 
materials,  labor  and  transportation  facilities.  The 
pressure  for  the  production  of  essential  commodi¬ 
ties — munitions,  war  supplies,  and  foodstuffs — ^will 
probably  become  greater,  and  may  finally  reach  a 
stage  where  the  use  of  raw  materials  and  labor  will 
be  placed  under  Government  direction.  Orders  may 
be  issued  for  the  suspension  of  unessential  industries 
and  for  the  employment  of  their  labor  and  mana¬ 
gerial  ability  in  directions  which  are  immediately 
important. 

15.  Development  of  Managerial  Ability  and 
Productive  Efficiency 

The  awarding  of  Government  contracts  on  a  cost 
basis  with  the  stimulus  of  a  bonus  for  producing  the 
ships  and  commodities  at  less  than  the  Government’s 
estimates,  will  have  a  tendency  to  develop  the 

32 


productive  efficiency  of  our  industries  in  an  un¬ 
exampled  way.  The  field  for  technical,  executive 
and  managerial  ability  will  be  constantly  broadened, 
and  already  a  premium  has  been  placed  upon  such 
qualifications. 

The  output  of  the  individual  wage-earner  will  also 
be  increased  by  the  offer  of  war  bonuses  for  pro¬ 
ductivity,  and  as  time  goes  on,  greater  individual 
productivity  may  be  expected  from  the  fact  that 
labor  organizations,  as  in  Great  Britain,  will  be 
asked  to  give  up  their  rules  restricting  output.  This 
they  will  undoubtedly  be  willing  to  do  in  return  for 
increased  recognition  of  labor  organizations  and  the 
protection  and  maintenance  of  the  present  working 
standards. 


33 


V.  INDUSTRY  AFTER  THE  WAR 

Under  these  conditions  American  industry  after 
the  war  should  be  more  productive  and  in  a  better 
competitive  condition  than  ever  before  in  its  history. 
The  development  of  managerial  ability  and  efficiency, 
the  breaking  down  of  restrictive  practices,  and  the 
development  of  greater  productive  efficiency  of  the 
wage-earner,  should  make  possible  large  reductions 
in  the  cost  of  production  of  each  unit  of  output.  A 
greater  degree  of  cooperation  between  capital  and 
labor  will  also  probably  have  been  developed.  If 
the  relations  between  industry  and  the  Government 
are  also  handled  in  a  spirit  of  broad  patriotism  with¬ 
out  the  seeking  of  temporary,  excessive  profits,  busi¬ 
ness  and  industry  may  expect  to  be  freed  from 
vexatious  and  harmful  regulation  and  coercion  and 
be  permitted  to  combine  under  generous  Govern¬ 
mental  regulation  so  as  to  secure  the  most  economical 
and  effective  results  in  producing  and  selling. 

At  the  termination  of  the  war  the  banking  and 
credit  facilities  available  to  American  business 
should  surpass  those  of  any  other  country,  and  under 
these  conditions  together  with  those  expected  to 
develop  during  the  war,  American  industry  and 
business  should  be  supreme  in  the  home  markets  and 
well  able  to  compete  with  any  other  country  in  the 
markets  of  the  world. 


34 


VI.  EFFECT  OF  THE  WAR  UPON 
BUSINESS  IN  CANADA 

The  outbreak  of  the  war  found  Canada  passing 
thru  a  year  of  depression  and  readjustment  which 
followed  a  long  period  of  real  estate  speculation  and 
railroad  development.  The  fact  that  business  was 
already  quiet  tended  to  mitigate  the  shock  of  the 
war. 

Enlistment  and  Conscription 

Already,  Canada  has  sent  an  army  of  375,000 
men  to  Europe  and  has  in  addition  30,000  men 
undergoing  training  at  home.  Since  the  total  popu¬ 
lation  of  Canada  before  the  war  was  less  than  eight 
million,  this  means  that  more  than  five  per  cent 
of  the  total  population  and  probably  twenty  per 
cent  of  the  available  military  man  power  of  the 
nation  has  already  entered  service.  In  order  that 
Canada  may  maintain  her  strength  at  the  battle 
front,  however  long  the  war  may  last,  a  Compulsory 
Service  bill  has  been  passed  by  the  national  legis¬ 
lature  under  the  leadership  of  Premier  Borden. 

Labor 

So  much  of  the  available  labor  supply  is  em¬ 
ployed  in  the  manufacture  of  munitions  that  a  great 
shortage  is  experienced  in  other  industries.  Owing 
to  this  shortage  of  labor,  Canadian  manufacturers 

35 


are  generally  reducing  orders  for  export,  except  in 
the  case  of  war  supplies  for  the  Allies. 

Canadian  War  Orders 

Up  to  the  end  of  1916,  Canada  received  war 
orders  amounting  to  $1,100,000,000.'  It  is  estimated 
that  the  amount  will  be  at  least  $500,000,000  during 
1917.  Some  of  the  orders  received  from  Great 
Britain  have  been  filled  by  subletting  contracts  in 
the  United  States  just  as  Canadian  manufacturers, 
according  to  capacity  available,  are  getting  a  share 
of  the  war  orders  placed  by  the  United  States  Gov¬ 
ernment. 

Expansion  of  Foreign  Trade 

As  a  result  of  these  war  orders  there  has  been 
a  tremendous  expansion  of  Canada’s  export  busi¬ 
ness,  the  total  having  increased  from  $430,000,000 
in  1913-14  to  nearly  $1,200,000,000  in  the  year  end¬ 
ing  March,  1917 — an  increase  of  180  per  cent. 

CANADIAN  EXPORTS  (MILLIONS) 

(Fiscal  year  ending  March  31) 


1917 

1914 

Increase 

Manufactured  Products  . 

.  $496.6 

$57.4 

$439.2 

The  Mines  . 

.  85.8 

59.0 

26.8 

The  Fisheries  . 

.  24.7 

20.6 

4.1 

The  Forests  . 

.  56.1 

42.8 

13.3 

Animal  Produce  . 

.  128.2 

53.3 

74.9 

Agricultural  Products  . 

. . . .  363.5 

198.2 

165.3 

Miscellaneous  . 

.  6.3 

0.1 

6.2 

Total  . i . . . . 

. $1,161.4 

$431.6 

$729.8 

This  expansion  in  manufacturing  has  necessitated 
large  imports  of  raw  materials.  During  the  past 

36 


year  the  total  merchandise  imports  reached  $845,- 
000,000  as  compared  with  $635,000,000  before  the 
war. 

Canada’s  sales  abroad,  however,  have  increased 
much  faster  than  her  importations,  and  during  the 
past  year  she  enjoyed  a  foreign  trade  surplus  of 
$344,000,000,  while  as  late  as  1912-13  there  was  a 
deficit  of  over  $300,00Q,000. 

Cost  of  the  War 

I 

According  to  a  recent  statement  by  Sir  Thomas 
White  in  the  House  of  Commons,  Canada  spent  dur¬ 
ing  the  first  three  years  of  the  war  $623,000,000. 
At  the  present  time  her  daily  war  expenditures  at 
home  and  in  France  amount  to  about  $900,000. 
This  indicates  that  her  expenditure  during  the  com¬ 
ing  year  will  be  more  than  $325,000,000. 

Borrowing  and  Taxes 

Up  to  the  first  of  April,  1917,  Canada’s  war  tax 
on  business  profits  had  produced  about  $32,000,000. 
It  is  expected  to  yield  about  $30,000,000  during  the 
current  fiscal  year.  In  order  to  avoid  interference 
with  industrial  development  this  tax  is  to  be  discon¬ 
tinued  at  the  end  of  the  present  fiscal  year.  To 
obtain  increased  revenues,  the  Canadian  govern¬ 
ment  has  recently  proposed  an  income  tax  similar 
to  that  which  exists  in  the  United  States.  ' 

For  the  purpose  of  assisting  Canadian  manufac¬ 
turers  to  obtain  war  orders  from  abroad,  Canada 
has  loaned  Great  Britain  nearly  $400,000,000,  of 


which  $250,000,000  has  been  advanced  by  the  gov¬ 
ernment  and  the  remainder  by  Canadian  banks  and 
the  Canadian  Pacific  Railway.  In  order,  however, 
to  be  able  to  buy  raw  materials  from  the  United 
States,  it  has  been  found  necessary  to  borrow  ex¬ 
tensively  in  this  country.  To  facilitate  such  borrow¬ 
ing  the  Royal  Bank  of  Canada  has  recently  pur¬ 
chased  a  controlling  interest  in  the  Merchants 
National  Bank  of  New  York.  Altho  lending  abroad 
for  ordinary  purposes  has  been  stopped,  the  United 
States  Government  has  recently  permitted  New 
York  financial  interests  to  buy  $100,000,000  of 
Canadian  notes,  and  such  loans  will  probably  be 
continued  in  amounts  sufficient  to  cancel  Canada's 
trade  indebtedness  to  the  United  States,  which  dur¬ 
ing  the  past  year  amounted  to  nearly  $400,000,000. 

Crops  and  the  Food  Supply 

The  war  has  brought  prosperity  to  Canada's  fish¬ 
ing  industry  as  well  as  to  her  farmers.  The  latter 
have  made  substantial  progress  in  paying  off  obliga¬ 
tions  for  farm  implements. 

Canada  needs  only  about  fifty  million  bushels  of 
wheat  for  her  own  use,  so  that  out  of  a  probable 
harvest  of  275  million  bushels  this  fall  she  will  be 
able  to  export  225  millions  to  England  and  France. 

Of  animal  produce  Canada  exported  $128,000,000 
during  the  past  year  which  is  double  any  year’s  total 
before  the  war. 

Agricultural  prosperity  has  resulted  in  a  rapid 
increase  in  use  of  automobiles  in  western  Canada. 

38 


Lumber 


The  reduction  in  shipping  tonnage  and  the  al¬ 
most  prohibitive  increases  in  ocean  rates  have  hurt 
the  lumber  industry  in  British  Columbia.  Wire 
rope,  used  in  logging,  is  also  difficult  to  obtain  owing 
to  the  scarcity  and  high  prices  of  steel.  During 
the  war  it  is  not  likely  that  the  government  will 
grant  the  supply  of  ships  and  machinery  necessary 
for  restoring  the  lumber  business  to  its  normal  con¬ 
dition. 

Munitions 

Before  the  war  Canada’s  munition  capacity  was 
almost  negligible.  At  the  present  time  her  factories 
produce  800,000  shells  per  week.  She  has  now  650 
munitions  factories,  with  which  $850,000,000  worth 
of  orders  have  been  placed.  Canada’s  present  pro¬ 
duction  of  munitions  is  greater  than  that  of  any 
country  before  the  war — Germany  excepted. 

Transportation  and  Shipping 

With  railroad  trackage  Canada  is  temporarily 
overbuilt.  The  Canadian  Northern’s  territory  is 
still  in  the  early  stages  of  development,  and  the 
financial  effects  of  the  war  have  driven  it  almost 
into  bankruptcy.  The  recent  indications  that  the 
government  will  purchase  the  road  have  caused  an 
advance  of  ten  points  in  the  company’s  bonds  in 
London. 

The  great  commercial  benefits  of  Canada’s  rail¬ 
roads  during  the  war,  however,  have  more  than 


offset  their  present  financial  weakness  as  a  factor 
in  the  mobilization  of  war  resources;  for  without 
adequate  railroads  the  tremendous  industrial  de¬ 
velopment  of  Canada  during  the  past  two  years 
would  not  have  been  possible. 

Despite  the  abundant  trackage  there  is  a  consider¬ 
able  interference  with  commerce  owing  to  shortage 
of  cars  and  ships.  This  is  being  remedied  as  fast 
as  possible.  On  the  shores  of  both  oceans,  on  the 
St.  Lawrence  and  on  the  Great  Lakes,  Canadian 
shipyards  are  actively  engaged  in  the  construction 
of  steel  ships  of  4,000  to  9,000  tons  each,  in  addi¬ 
tion  to  smaller  steamers  and  wooden  sailing  vessels. 

Coal 

Canadian  industries  have  shared  in  the  present 
fuel  shortage,  and  the  fact  that  no  coal  may  be 
shipped  from  the  United  States  except  under  special 
license,  is  restricting  fuel  shipments  to  Canada. 
During  the  open  season  on  the  Lakes  the  grain  boats 
returning  from  Buffalo  will  be  able  to  move  con¬ 
siderable  quantities  of  coal  toward  Western  Canada ; 
yet  some  restriction  of  Canadian  manufacturing 
activity  on  account  of  the  coal  shortage  will  prob¬ 
ably  be  suffered. 

Business  After  the  War 

After  the  war  Canada  will  necessarily  lose  an 
export  trade  in  war  materials  amounting  now  to 
about  $800,000,000  a  year.  There  will  also  be  a  re- 

40 


lease  of  some  125,000  or  more  workers  who  are 
now  employed  in  the  manufacture  of  munitions  and 
military  supplies.  A  period  of  readjustment  will 
ensue,  during  which  the  energies  now  devoted  to 
warfare  must  be  skilfully  transferred  to  the  arts  of 
peace,  in  order  that  unemployment  and  business 
depression  may  be  avoided. 

As  indications  that  this  readjustment  will  be  suc¬ 
cessfully  effected,  several  favorable  factors  stand  out 
prominently : 

First;  it  is  known  that  during  the  ten  years  be¬ 
fore  the  war,  immigration  to  Canada  amounted  to 
about  2,500,000  persons,  mostly  from  Great  Britain 
and  the  United  States,  and  that  capital  from  Great 
Britain  was  invested  in  Canada  to  the  extent  of 
$1,500,000,000.  The  fact  that  the  period  of  devel¬ 
opment  then  begun  is  far  from  completed,  suggests 
that  Canada  will  still  be  attractive  to  foreign  capital 
and  population  after  the  war. 

Second;  the  railroad  trackage  already  laid  in 
Canada  is  capable  of  supporting  a  large  increase 
in  population  and  industrial  development. 

Third;  the  recent  improvements  in  the  banking 
system  of  the  United  States  will  facilitate  American 
investment  abroad,  and  the  mutual  interests  in  com¬ 
merce  and  similarity  of  ideals  and  institutions 
should  encourage  the  investment  of  American  capi¬ 
tal  in  Canadian  industries. 

Fourth;  speculative  inflation  has  been  eliminated 
from  the  Canadian  economic  situation,  and  pros¬ 
pects  of  a  period  of  rising  values  thruout  the  Do- 

41 


minion  should  stimulate  an  influx  of  both  population 
and  capital. 

And  last  but  not  least,  the  war-tested  quality  of 
the  political  and  economic  leadership  in  Canada  is  a 
satisfactory  guaranty  that  the  opportunities  for  de¬ 
velopment  in  Canada  and  all  mutual  interests  out¬ 
side  the  Dominion  will  be  welded  together  with  a 
minimum  of  friction  and  with  the  least  possible  delay. 


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APPENDIX  B 


WAR  CONTRACTS  AWARDED  BETWEEN 
APRIL  1  AND  JULY  31,  1917 

Miscellaneous  Awards 


Glass  products: 

Bottles,  lamps  and  glasses  . 

Instruments  . 

China  . (items) 

Porcelain,  agate  and  enamelware  . (items) 

Paper  . (sheets) 

“  (pounds) 

Coal  . (tons) 

Granite  and  gravel  . (tons) 

Abrasive  wheels  and  whetstones  . (items) 


Electrical  Supplies 

Motors  and  generators  . 

Meters  and  transformers  . 

Batteries  . 

Wire  and  cable  . . (feet) 

Instruments  of  communication: 

Telephones  . 

Radio  sets  . . . 

Signaling  devices  . 

Lamps . 

Searchlight  outfit  . 

Lighting  fixtures  . 

Outlet  and  panel  boxes  . 

Firearms  and  Ammunition 


Cartridges  . (items) 

Cartridge  cases  . (items) 

Shrapnel  . (rounds) 

Shells  . (rounds) 

Projectiles  . (items) 

Primers  . (items) 

Fuses  . (items) 

Loading,  packing  and  assembling  shells,  fuses  and 

shrapnel  . (rounds) 

Chemicals  and  Allied  Products 

Explosives  . (pounds) 

Acids  . (pounds) 

Sodas  . (pounds) 

Coal  tar  products  . (gallons) 


80,045 

35,054 

113,011 

38,504 

10,342,260 

652,019 

3,296,302 

17,190 

96,090 


46 

85 

33,021 

31,645,870 


7,604 

500 

1,000 

15,319 

1 

71,243 

2,576 


640,161,750 

8,486,000 

7,499,000 

7,386,510 

2,222,500 

10,984,344 

13,149,578 

9,063,890 


195,098,040 

4,483,000 

306,700 

35,850 


44 


Medicines,  antiseptics  and  disinfectants  . (bottles)  24,874,306 

“  “  “  “  . (tins)  360,500 

Soaps  . (pounds)  1,369,143 

Paints  . (pounds)  1,047,320 

Oils,  lubricating  . (gallons)  348,619 

Zinc  . (pounds)  74,500 

Aluminum  . (pounds)  21,660 

Canteens  . (items)  1,000,000 

Antimony  . (pounds)  26,000 


Metals  and  Metal  Products 

Brass  and  bronze  products :  ^ 

Ingots,  sheets,  tubing,  rod,  wire,  cable,  nails 


and  rivets  . (pounds)  2,656,128 

Grommets,  rings,  valves,  etc . (items)  9,605,804 

Iron  and  steel ;  ^ 

Steel,  bar  and  rod,  plate  and  sheet,  miscel¬ 
laneous  castings  . (pounds)  17,199,756 

Gun  forgings,  plungers,  mounts,  etc . (items)  365,005 

Tin  and  terne  plate  . (pounds)  40,CkX) 

Tin  cans  . (items)  2,744,400 

Cutlery  and  edge  tools  . (items)  2,032,825 

Tools  and  instruments  . (items)  139,166 

Hardware  . (items)  8,779,803 

Large  foundry  and  machine  shop  products . (items)  8,901 

Lead,  lead  pipe,  etc . .(pounds)  3,162,570 

Nickel  . (pounds)  138,200 

Monel  metal  . . (pounds)  51,650 

Babbitt  metal  . (pounds)  5,200 

T  extiles 

Textile  fabrics  and  materials : 

Cotton  goods,  including  tape  . (yards)  87,380,001 

Woolen  and  worsted  goods  . (yards)  5,931,794 

Blankets  . (items)  4,281,027 

Silk  goods  . (yards)  853,725 

Cordage  and  twine . (pounds)  21355  539 

Jute  and  linen  goods  . (yards)  2,702,145 

Knit  undershirts  and  drawers  . (items)  9,779,629 

Socks  and  stockings  . (pairs)  11,783,866 

Jerseys  and  watch  caps  . (items)  1,150,000 

Articles  from  textile  fabrics : 

Breeches  and  coats . (items)  ^4,777,400 

Overcoats  . (items)  1,455,000 

Shirts,  drawers  and  pajamas . (items)  ^2,923,662 

Working  garments  . . (items)  227,800 

Furnishing  goods  . (items)  4,335,380 


1  Awards  have  been  made  for  large  quantities  of  other  metal  products,  but 
owing  to  the  many^  standards  of  measurement  involved  they  cannot  be  reduced 
to  a  common  denominator. 

2  Other  small  orders  have  been  omitted  because  the  standard  of  measurement 
could  not  be  reduced  to  pounds. 

3  Exclusive  of  naval  uniforms  which  are  manufactured  at  the  Navy  Yards. 

4  Exclusive  of  army  shirts  manufactured  at  Quartermasters’  Depots. 


Articles  from  textile  fabrics — Continued. 

Gloves  (woolen  and  cotton)  . (pairs)  1,071,765 

Hats  (felt)  . (items)  1,346,000 

Tents,  paulins  and  wagon  covers  . (items)  1,514,757 

Bags,  sacks  and  canteen  covers  . (items)  3,444,733 

Leather  and  Its  Finished  Products 

Leather,  tanned,  curried  and  finished . (square  feet)  1,722,200 

“  “  “  “  “  . (pounds)  804,844 

Boots  and  shoes  . (pairs)  9,742,730 

Gloves  . (pairs)  483,400 

Saddlery  and  harness  . (sets)  42,356 

“  “  “  (items)  2,299,285 

Rubber  Goods'^ 

Rubberized  garments  . (items)  1,041,163 

Boots  and  shoes  . (pairs)  457,826 

Medical  supplies  (including  bags,  syringes,  etc.)  ...  (items)  281,632 

Inner  tubing  and  casings  . (items)  18,540 

Balloons  . (items)  4 

Miscellaneous  articles  (including  gaskets,  stoppers, 

etc.)  . . (items)  369,016 

Ships  and  Boats 

Submarine  torpedo  boats  .  38 

Submarine  chasers  .  157 

Cargo-carrying  steamers : 

Steel  .  34 

Wood  . 54 

Battle  cruisers  .  5 

Scout  cruisers  .  6 

Lighthouse  tender  steamer  .  1 

Torpedo  boat  destroyers  .  2 

Airplanes  and  Seaplanes 

Airplanes  .  1,768 

Seaplanes  .  6 

Vehicles  for  Land  Transportation 

Locomotives  .  21 

Cars  (trolley  and  box)  .  407 

Motor  trucks  .  10,652 

Motor  truck  bodies  .  22,750 

Motorcycles  .  5,000 

Side  cars  . 2,300 

Motor  ambulance  bodies .  2,308 

Wagons  and  carriages  . 9,964 

Wagon*  parts  . .  111,295 


^  Awards  havQ  also  been  made  for  large  quantities  of  other  rubber  products, 
but  owing  to  the  several  standards  of  measurement  involved  they  cannot  be 
reduced  to  a  common  denominator. 


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